As is known, retirement planning is performed by an individual or a couple prior to retirement so that the individual/couple (hereinafter, ‘person’) will at least hopefully have a satisfactory amount of assets at retirement to provide necessary income and/or pay for expenses of the person. Retirement planning can take many forms and can have many goals, and accordingly the types of retirement planning that are performed are many and varied. For example, one type of retirement planning may attempt to maximize tax savings, while another type of retirement planning may attempt to maximize income during retirement. Notably, retirement planning may be performed with a stated goal to have enough assets for the reasonable expectation of life remaining of the person. Conversely, such planning may be performed with a stated goal to maximize the estate bequeathed to beneficiaries after the death of the person.
In any event, retirement planning for a person generally begins with an identification of the assets of the person, as well as an identification of the income and expenses of the person. Thereafter, a future value for each of the assets, income and expenses is projected based on multiple assumptions. Such assumptions are many and varied but are generally known. Generally, for any period of time such as for example a year, assets at the end of the year may be calculated as assets at the beginning of the year plus, income generated from the assets and from other sources, minus expenses that are paid out. Of course, if income remains after expenses, the difference represents a net addition to assets. Conversely, if no income remains after expenses, the difference represents a net reduction from assets.
Projecting the future values for each of the asset, the income, and the expenses, then, requires calculations of net additions to or reductions from assets over multiple years or other periods of time, among other things. Significantly, in projecting such future values over multiple years or other periods of time, the projected values for each of the assets, the income, and the expenses must also be adjusted during each period of time for expected changes due to inflation, changes in market value, and other vagaries attributable to the passage of time.
In the prior art, such adjusting of projected future values was performed by assuming a static rate for inflation and applying the static inflation rate to the assets, income, and expenses of the person during each year or other period of time. Thus, if a person were projected to have assets of 500,000 USD, income of 40,000 USD, and expenses of 40,000 USD in one year and a static inflation rate of 5 percent was assumed, it would be the case at least in a simplified analysis that the person would be projected to have assets of 525,000 USD, income of 42,000 USD, and expenses of 42,000 USD in the next year, and assets of 55,1250 USD, income of 44,100 USD, and expenses of 44,100 USD in the year after.
Notably, such a static rate of inflation is a wildly inaccurate assumption, even if reasonable, say about 6-8 percent or so. That is to say, the rate of inflation in fact varies, and in doing so almost never can be realistically approximated in the context of retirement planning by a single static value. Moreover, such a static rate of inflation often has little if any resemblance to the values of assets in particular over many years, especially inasmuch as the values of assets can be much more volatile. For example, the values of shares of stock in a corporation can fluctuate wildly over time based on market conditions, and the values of bonds usually track oppositely to stocks. Likewise, the value of real estate has been known to appreciate significantly in one year and then depreciate significantly in another, and the values of lumber and metals typically soar during periods of unrest and plummet during periods of calm. Similarly, similar market conditions may affect different classes of assets in an entirely different manner. For example, an increase in the cost of oil usually results in an increase in the cost of plastic, which is typically derived from oil, but a decrease in the cost of automobiles due to slackening demand. As should be understood, then, a reasonable static rate of inflation oftentimes bears little correlation with the change in value of many classes of assets.
Accordingly, a need exists for systems and methods for projecting future values and future asset values in particular that do not rely on a static rate such as a static rate of inflation. More particularly, a need exists for such systems and methods that project future asset values for classes of assets in connection with retirement planning. Even more particularly, a need exists for such systems and methods that project such asset values based at least in part on historical asset values for classes of assets.